LONDON -Shares in Lloyds Banking Group helped lead banking stocks higher on Wednesday after the markets regulator published proposals for a lower-than-feared redress package over motor finance mis-selling.
The British bank, a leading motor finance lender, saw its shares jump and were last up 2.6% at 0840 GMT following the Financial Conduct Authority’s (FCA) 360-page consultation after-hours on Wednesday that estimated the motor finance industry could pay 8.2 billion pounds ($11.00 billion) in redress.
Shares in Barclays rose 1.2% while and Close Brothers’ stock surged at the open before settling up 1.1%.
The figure came in below the regulator’s initial estimate of 9 billion to 18 billion pounds, and, including 2.8 billion pounds of estimated operational costs, implied a 2.5 billion improvement on the FCA’s original central case, analysts at Shore Capital said.
The lengthy document will take time to digest, analysts said.
Analysts at Citi said the total impact of the redress scheme was higher than its expectations of around 9 billion pounds and both Citi and Jefferies analysts expect Lloyds will need to set aside 1.5 billion pounds to pay for redress, up from a current 1.15 billion pounds the bank has provisioned.
But in a note on Wednesday, RBC analysts said they believed Lloyds could cut the amount it had set aside to 850 million pounds, while Barclays and Close Brothers were covered by their existing provisions.
Lloyds said in a statement on Wednesday that it was “assessing the implications and impact of this consultation in the context of its current provision for this issue”, and that it would update the market when appropriate.
Shore Capital’s Gary Greenwood noted that roughly 60% of motor finance loans written in the first half of 2024 resided outside the banking industry, which has put aside more than 2 billion pounds to cover compensation.
($1 = 0.7454 pounds)
(Reporting by Kirstin Ridley; Editing by Tommy Reggiori Wilkes)
